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Pan American and Agnico Team Up for Yamana

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Source: Adrian Day   11/07/2022

Expert Adrian Day believes the gold sector is picking up again and reviews two companies attempting to outbid Gold Fields in its proposed takeover of Yamana Gold.

Two of the companies on our list, Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ) and Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE), have joined forces to offer US$4.8 billion in cash and stock in an effort to outbid Gold Fields Ltd. (GFI:NYSE; GFI:JSE) for Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE).

Three of the four involved companies are clear winners: Yamana gets a higher bid, while Gold Fields avoids the potential embarrassment of its own shareholders voting down the deal, which seems more than a remote possibility. It also collects a US$300 million break fee.

Agnico gains 50% of its prize mine, Malartic, that it does not already own, resulting in obvious synergies as well as giving it full ownership of Canada’s top gold mine.

Agnico will also get Yamana’s other Canadian project, Wasamac. It is paying above NAV for the assets, a fairly hefty price, and it is dilutive to its NAV and cash flow but a prize worth having.

Pan American Gains Ounces and Growth but at a Price

More uncertain is what this means for Pan American. Not surprisingly, it was the only one of the four stocks that fell Friday after the transaction was announced.

Stock of acquiring companies often fall. It is arguably paying a high price for increased exposure to Latin America, including two new countries in which it does not already operate (Chile and Brazil), adding to complexities for a company that has not outshone itself in operations recently.

It would also increase its pipeline in the region to become the leading precious metals miner in the continent, which it has operated for nearly 30 years.

The acquisition would take care of any concern about a decline in production profile after 2026 (ex-Escobal and Navidad, two large projects held up in political challenges). The transaction would double Pan American’s gold production and its silver production by around 50%.

The acquisition would be marginally accretive on most metrics despite Pan American’s low stock price. The deal price, in cash and shares, is at a 15% premium to the contemporaneous value of
the Gold Fields offer, though less than the value when it was made. All of the cash would come from Agnico. Pan American and Agnico said they were restricted from speaking about the offer for the time being. It is scheduled to close next quarter.

Although the Yamana board has accepted the new offer, Gold Fields retains a right of first refusal; it is not certain that it will exercise that right given the opposition from many of its shareholders. On Friday, however, it put out a statement saying that its bid is “strategically and financially superior.”

The irony is that the surge in Gold Fields’ share price after Pan American made its offer, along with the decline in Pan Am’s price, has erased most of the premium in the PAAS/AEM bid; indeed, for much of Friday, Gold Fields’ was the higher offer.

The Outcome Is Not Certain

Given that Gold Fields still has to respond on the ROFR; that Pan American and Agnico still have to answer questions on their offer; and given that Yamana shareholders are scheduled to vote on Gold Fields’ offer on the 21st, as well as the continually changing stock prices, the outcome of this battle is unclear at this time, although the AEM/PAAS bid is the likely winner.

We would buy Agnico, despite the stock bounce on Friday. Were it to lose this bidding war, it would remain a quality company at a good price. Pan American stock, however, may drift lower.

There has been some speculation that Pan American’s move signals a lack of confidence that they will be able to get Escobal up and running smoothly.

It is likely that the local government will issue the mining permit once the Guatemala Supreme Court approves the court-ordered consultation process, but that does not guarantee a smooth operating path for Pan American.

At a minimum, gaining Yamana’s many mines would give Pan American a reason to delay the restart of Escobal if it deemed on-the-ground support was still lacking. Others dispute that assessment. 

Separately, Pan American released results from 45 new drill holes at its La
Colorado Skarn project, expanding the high-grade silver zone identified in July.
This zone was not included in the mineral resource released in September, so an
updated resource estimate as well as the PEA expected next year, should see a
larger resource as well as a higher average grade. This will be a significant
contributor to production later in the decade.

In our portfolio, we own two of the four companies. We would buy Agnico, despite the stock bounce on Friday. Were it to lose this bidding war, it would remain a quality company at a good price. Pan American stock, however, may drift lower.

If the transaction goes ahead as proposed, there would be significant share dilution. Indeed, Yamana shareholders would hold 42% of the combined company, and it is not unreasonable to expect many of those shares to hit the market, though, under an agreement, Agnico could buy up to US$150 million in Pan Am shares at its discretion.

Still, Yamana shareholders would gain 154 million shares, while Agnico has the right to buy just under 11 million shares, so there could be a weight on the stock from selling.

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Adrian Day Disclosures:

Adrian Day’s Global Analyst is distributed for $990 per year by Investment Consultants International, Ltd., P.O. Box 6644, Annapolis, MD 21401. (410) 224-8885. Publisher: Adrian Day. Owner: Investment Consultants International, Ltd. Staff may have positions in securities discussed herein. Adrian Day is also President of Global Strategic Management (GSM), a registered investment advisor, and a separate company from this service. In his capacity as GSM president, Adrian Day may be buying or selling for clients securities recommended herein concurrently, before or after recommendations herein, and may be acting for clients in a manner contrary to recommendations herein. This is not a solicitation for GSM. Views herein are the editor’s opinion and not fact. All information is believed to be correct, but its accuracy cannot be guaranteed. The owner and editor are not responsible for errors and omissions. © 2022. Adrian Day’s Global Analyst. Information and advice herein are intended purely for the subscriber’s own account. Under no circumstances may any part of a Global Analyst e-mail be copied or distributed without prior written permission of the editor. Given the nature of this service, we will pursue any violations aggressively.


1) Adrian Day: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: All. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management, which is unaffiliated with Adrian Day’s newsletter, hold shares of the following companies mentioned in this article: All. I determined which companies would be included in this article based on my research and understanding of the sector.

2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.

3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.

4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services, or securities of any company mentioned on Streetwise Reports.

5) From time to time, Streetwise Reports LLC and its directors, officers, employees, or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in the securities mentioned. Directors, officers, employees, or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company release. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Agnico Eagle Corp., a company mentioned in this article.



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